James Heppelmann, President and CEO said “PTC’s ARR grew 12% in fiscal 2019 reflecting the strength of our technology in the markets we serve and the value we provide to our customers. We also successfully completed the transition to subscription licensing and ended the year strong across key financial metrics including revenue and margins.”

Heppelmann added, “Today, we also announced PTC’s intention to acquire Onshape, creators of the first SaaS product development platform that unites next-generation CAD, data management, and collaboration tools. Onshape’s proven talent and technology are the perfect complement to PTC’s market leading on-premise CAD and PLM solutions, and will dramatically strengthen PTC’s ability to participate in the highest growth part of the market with a unique SaaS-based product offering. Most importantly, Onshape will put PTC in a position to lead the market’s inevitable shift to SaaS.”

Fourth quarter and fiscal year 2019 highlights1

Additional operating and financial highlights are set forth below. For additional details, please refer to the prepared remarks and financial data tables that have been posted to the Investor Relations section of our website at investor@ptc.com. Note that all references to revenue and margins are under ASC 605.

License and subscription bookings in Q4’19 were $150 million, $5 million above the high end of our guidance range driven by strong bookings in IoT and AR, including a mega deal with our strategic alliance partner Rockwell Automation.2 FY’19 license and subscription bookings were $472 million, up 1% year over year or 4% on a constant currency basis.

ARR per the new definition was $1,116 million, or $1,134 million at the guidance Fx rate, at the end of Q4’19, in line with the targets we provided in September. This is a 10% increase, or 12% increase consistent with the guidance rate, compared to Q4’18, reflecting the strength of our recurring revenue business.

Recurring software revenue was $284 million in Q4’19, an increase of 9% year over year or 11% in constant currency. FY’19 recurring software revenue was $1,079 million, an increase of 10% year over year or 13% in constant currency.

Total cash, cash equivalents, and marketable securities: As of the end of Q4’19 total cash, cash equivalents, and marketable securities was $327 million and total debt, net of deferred issuance costs, was $669 million3. We repurchased approximately 378,000 shares in the fourth quarter of fiscal 2019 and 1.4 million shares in fiscal 2019, spending $25 million and $115 million, respectively. Additionally, in Q4’19, we repaid $30 million on our revolving credit facility. In Q3 of fiscal 2019, we also retired 3 million shares at no cost related to the ASR initiated in the fourth quarter of fiscal 2018.

Fiscal 2020 Operational Outlook

Our fiscal 2020 operational outlook includes the following general considerations:

ARR guidance:

Allows for potential impact of moderate weakening of macroeconomic conditions

Onshape contribution of approximately 100 bps of incremental growth

Contribution from ramp deals and deals with FY’20 start dates

Modest improvement to churn

FCF and adjusted FCF guidance reflects:

Operating cash flow of $248M – $268M

$30M of Capex

$37M of restructuring and headquarters relocation charges4

Short-term impacts of $65M including:

$25M of incremental interest expense related to the Onshape acquisition

Our fiscal 2020 financial outlook includes the following general considerations:

The Onshape acquisition (excluding the impact of purchase accounting and acquisition-related costs).

Operating expenses are expected to grow roughly 9%, slightly elevated due to the Onshape acquisition. We expect the run-rate to decline in the back half of FY’20.

Allows for potential impact of moderate weakening of macroeconomic conditions

Based on Fx rates as of September 30, 2019.

Sharecount will be roughly flat compared to FY’19. We are suspending the share repurchase program for one year to accelerate debt repayment.

ASC 606 creates quarterly and annual volatility for on-premise subscription companies due to factors that affect revenue recognition such as:

Term length for new and renewal bookings

Contract start-date timing

Quarterly spread of new and renewal bookings

Support to subscription conversions

Potential future changes to revenue recognition for certain products as they become further cloud enabled

As such, we are providing a wide range on revenue and EPS.

1We include operating and non-GAAP financial measures in our operational highlights. We revised the definition of ARR on September 5, 2019. The detailed definitions of these items and reconciliations of Non-GAAP financial measures to comparable GAAP measures are included below and in the reconciliation tables at the end of this press release.

2The mega deal from Rockwell Automation was issued to satisfy a portion of expected FY’20 demand and will be credited against committed ACV minimums due in FY’20 under the parties’ strategic alliance agreement, as amended. Excluding the mega deal, bookings for the quarter were within the guidance range.

3 We plan to increase the revolving credit facility from $700 million to $1 billion in FY’20.

(1) The FY’20 non-GAAP revenue and non-GAAP EPS guidance exclude the estimated items outlined in the table below, as well as any tax effects and discrete tax items (which are not known nor reflected).

In millions

FY’20

Restructuring charges

$25

Intangible asset amortization expense

$49

Stock-based compensation expense

$119

Total Estimated Pre-Tax GAAP adjustments

$193

Estimates for the effect of acquisition accounting on fair value of acquired deferred revenue, intangible amortization and acquisition-related charges related primarily to the Onshape acquisition are not reflected in the FY’20 revenue and EPS guidance table above.

Prepared remarks and financial data tables have been posted to the Investor Relations section of our website at ptc.com. The Company will host a conference call to discuss results at 5:00 pm ET on Wednesday, October 23, 2019. To access the live webcast, please visit PTC’s Investor Relations website at investor.ptc.com at least 15 minutes before the scheduled start time to download any necessary audio or plug-in software. To participate in the live conference call, dial 773-799-3757 or 800-857-5592 and provide the passcode PTC. The call will be recorded, and a replay will be available for 10 days following the call by dialing 800-873-2012 and entering the passcode 9752. The archived webcast will also be available on PTC’s Investor Relations website.

PTC Inc.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

Three Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

Revenue:

Subscription license

$

84,936

Subscription support & cloud services

97,641

Total Subscription

182,577

$

185,483

$

142,376

Perpetual support

100,007

98,577

117,819

Total recurring revenue

282,584

284,060

260,195

Perpetual license

9,347

8,530

27,030

Total software revenue

291,931

292,590

287,225

Professional services

43,073

42,238

25,296

Total revenue (1)

335,004

334,828

312,521

Cost of revenue: (2) (3)

Cost of software revenue

48,813

48,415

43,765

Cost of professional services revenue

36,604

35,343

34,361

Total cost of revenue

85,417

83,758

78,126

Gross margin

249,587

251,070

234,395

Operating expenses: (2)(3)

Sales and marketing

101,307

111,701

109,198

Research and development

64,113

64,113

62,396

General and administrative

25,911

25,911

41,558

Amortization of acquired intangible assets

6,055

6,055

7,784

Restructuring and other charges, net

5,650

5,650

1,918

Total operating expenses

203,036

213,430

222,854

Operating income

46,551

37,640

11,541

Other expense, net (3)

(12,767

)

(12,790

)

(10,872

)

Income before income taxes

33,784

24,850

669

Provision (benefit) for income taxes (4)

23,958

40,794

(12,522

)

Net income (loss)

$

9,826

$

(15,944

)

$

13,191

Earnings (loss) per share:

Basic

$

0.09

$

(0.14

)

$

0.11

Weighted average shares outstanding

115,025

115,025

117,823

Diluted

$

0.08

$

(0.14

)

$

0.11

Weighted average shares outstanding

115,897

115,025

119,580

(1

)

See supplemental financial data for revenue by license, support, and professional services.

(2

)

See supplemental financial data for additional information about stock-based compensation.

(3

)

Periods prior to 2019 reflect immaterial expense reclassifications in connection with the adoption of new pension accounting prescribed in Accounting Standards Update 2017-07.

(4

)

Our tax provision for the fourth quarter of 2019 is based on estimates that are subject to final review.

PTC Inc.

UNAUDITED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

Twelve Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

Revenue:

Subscription license

$

253,698

Subscription support & cloud services

348,452

Total Subscription

602,150

$

667,597

$

482,027

Perpetual support

415,248

411,030

496,826

Total recurring revenue

1,017,398

1,078,627

978,853

Perpetual license

70,702

72,191

109,634

Total software revenue

1,088,100

1,150,818

1,088,487

Professional services

167,531

160,676

153,337

Total revenue (1)

1,255,631

1,311,494

1,241,824

Cost of revenue: (2)(3)

Cost of software revenue

185,414

183,218

182,843

Cost of professional services revenue

139,964

134,936

143,659

Total cost of revenue

325,378

318,154

326,502

Gross margin

930,253

993,340

915,322

Operating expenses: (2)(3)

Sales and marketing

417,449

441,958

414,764

Research and development

246,888

246,888

249,786

General and administrative

127,919

127,919

143,045

Amortization of acquired intangible assets

23,841

23,841

31,350

Restructuring and other charges, net

51,114

51,114

3,764

Total operating expenses

867,211

891,720

842,709

Operating income

63,042

101,620

72,613

Other expense, net (3)

(42,742

)

(42,916

)

(43,957

)

Income before income taxes

20,300

58,704

28,656

Provision (benefit) for income taxes (4)

47,760

55,725

(23,331

)

Net income (loss)

$

(27,460

)

$

2,979

$

51,987

Earnings (loss) per share:

Basic

$

(0.23

)

$

0.03

$

0.45

Weighted average shares outstanding

117,724

117,724

116,390

Diluted

$

(0.23

)

$

0.03

$

0.44

Weighted average shares outstanding

117,724

118,714

118,158

(1

)

See supplemental financial data for revenue by license, support, and professional services.

(2

)

See supplemental financial data for additional information about stock-based compensation.

(3

)

Periods prior to 2019 reflect immaterial expense reclassifications in connection with the adoption of new pension accounting prescribed in Accounting Standards Update 2017-07.

(4

)

Our tax provision for fiscal 2019 is based on estimates that are subject to final review. Our 2018 year-to-date tax rate includes a benefit of $12 million relating to the enactment of the Tax Cuts and Jobs Act.

PTC Inc.

SUPPLEMENTAL FINANCIAL DATA FOR REVENUE AND STOCK-BASED COMPENSATION

(in thousands)

Revenue by license, support and services is as follows:

Three Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

License revenue (1)

$

94,283

$

173,514

$

152,675

Support and cloud services revenue

197,648

119,076

134,550

Professional services revenue

43,073

42,238

25,296

Total revenue

$

335,004

$

334,828

$

312,521

Twelve Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

License revenue (1)

$

324,400

$

666,770

$

529,265

Support and cloud services revenue

763,700

484,048

559,222

Professional services revenue

167,531

160,676

153,337

Total revenue

$

1,255,631

$

1,311,494

$

1,241,824

(1) Under ASC 605, we have classified all subscription revenue as license revenue.

The amounts in the income statement include stock-based compensation as follows:

Three Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

Cost of software revenue

$

1,791

$

1,791

$

1,180

Cost of professional services revenue

1,361

1,361

2,233

Sales and marketing

6,912

6,912

10,066

Research and development

7,168

7,168

3,862

General and administrative

(2,440)

(2,440)

13,583

Total stock-based compensation

$

14,792

$

14,792

$

30,924

Twelve Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

Cost of software revenue

$

5,513

$

5,513

$

4,446

Cost of professional services revenue

6,426

6,426

7,079

Sales and marketing

32,026

32,026

24,893

Research and development

22,019

22,019

13,488

General and administrative

20,416

20,416

33,033

Total stock-based compensation

$

86,400

$

86,400

$

82,939

PTC Inc.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)

(in thousands, except per share data)

Three Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

GAAP revenue

$

335,004

$

334,828

$

312,521

Fair value adjustment of acquired deferred subscription revenue

–

–

75

Fair value adjustment of acquired deferred services revenue

192

192

223

Settlement adjustment – subscription revenue (2)

–

–

(5,250

)

Settlement adjustment – services revenue (2)

–

–

14,546

Non-GAAP revenue

$

335,196

$

335,020

$

322,115

GAAP gross margin

$

249,587

$

251,070

$

234,395

Fair value adjustment of acquired deferred revenue

192

192

298

Settlement adjustment – revenue (2)

–

–

9,296

Fair value adjustment to deferred services cost

(88

)

(88

)

(91

)

Stock-based compensation

3,152

3,152

3,413

Amortization of acquired intangible assets included in cost of revenue

6,874

6,874

6,677

Non-GAAP gross margin

$

259,717

$

261,200

$

253,988

GAAP operating income

$

46,551

$

37,640

$

11,541

Fair value adjustment of acquired deferred revenue

192

192

298

Settlement adjustment – revenue (2)

–

–

9,296

Fair value adjustment to deferred services cost

(88

)

(88

)

(91

)

Stock-based compensation

14,792

14,792

30,924

Amortization of acquired intangible assets included in cost of revenue

6,874

6,874

6,677

Amortization of acquired intangible assets

6,055

6,055

7,784

Acquisition-related and other transactional charges included in general and administrative costs

1,895

1,895

135

Restructuring and other charges, net

5,650

5,650

1,918

Non-GAAP operating income (1)

$

81,921

$

73,010

$

68,482

GAAP net income (loss)

$

9,826

$

(15,944

)

$

13,191

Fair value adjustment of acquired deferred revenue

192

192

298

Settlement adjustment – revenue (2)

–

–

9,296

Fair value adjustment to deferred services cost

(88

)

(88

)

(91

)

Stock-based compensation

14,792

14,792

30,924

Amortization of acquired intangible assets included in cost of revenue

6,874

6,874

6,677

Amortization of acquired intangible assets

6,055

6,055

7,784

Acquisition-related and other transactional charges included in general and administrative costs

1,895

1,895

135

Restructuring and other charges, net

5,650

5,650

1,918

Income tax adjustments (3)

29,317

32,673

(16,843

)

Non-GAAP net income

$

74,513

$

52,099

$

53,289

GAAP diluted earnings (loss) per share

$

0.08

$

(0.14

)

$

0.11

Fair value adjustment of acquired deferred revenue

–

–

–

Settlement adjustment – revenue (2)

–

–

0.08

Stock-based compensation

0.13

0.13

0.26

Amortization of acquired intangibles

0.11

0.11

0.12

Acquisition-related and other transactional charges

0.02

0.02

–

Restructuring and other charges, net

0.05

0.05

0.02

Income tax adjustments

0.25

0.28

(0.14

)

Non-GAAP diluted earnings per share

$

0.64

$

0.45

$

0.45

GAAP diluted weighted average shares outstanding

115,897

115,025

119,580

Dilutive effect of stock-based compensation plans

–

872

–

Non-GAAP diluted weighted average shares outstanding

115,897

115,897

119,580

(1

)

Operating margin impact of non-GAAP adjustments:

Three Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

GAAP operating margin

13.9

%

11.2

%

3.7

%

Fair value adjustment of acquired deferred revenue

0.1

%

0.1

%

0.1

%

Settlement adjustment – revenue (2)

0.0

%

0.0

%

2.4

%

Fair value adjustment to deferred services cost

0.0

%

0.0

%

0.0

%

Stock-based compensation

4.4

%

4.4

%

9.9

%

Amortization of acquired intangibles

3.9

%

3.9

%

4.6

%

Acquisition-related and other transactional charges

0.6

%

0.6

%

0.0

%

Restructuring and other charges, net

1.7

%

1.7

%

0.6

%

Non-GAAP operating margin

24.4

%

21.8

%

21.3

%

(2

)

Our Q4’18 and FY’18 GAAP revenue results include the impact of a settlement of a customer dispute concerning a professional services receivable. The settlement, reached in September 2018, included partial payment of the receivable and new software purchases. The net revenue write-down recorded in the fourth quarter of 2018 was $9.3 million, comprised of a $14.5 million services revenue write-down, partially offset by new subscription revenue of $5.2 million. We have excluded these amounts from our Non-GAAP results.

(3

)

We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the 2019 and 2018 non-GAAP tax provisions are being calculated assuming there is no valuation allowance. Income tax adjustments reflect the tax effects of non-GAAP adjustments, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. The fourth quarter of 2018 excludes the GAAP benefit of a $3 million valuation allowance release in a foreign jurisdiction as the jurisdiction was profitable on a non-GAAP basis.

PTC Inc.

NON-GAAP FINANCIAL MEASURES AND RECONCILIATIONS (UNAUDITED)

(in thousands, except per share data)

Twelve Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

GAAP revenue

$

1,255,631

$

1,311,494

$

1,241,824

Fair value adjustment of acquired deferred subscription revenue

66

66

341

Fair value adjustment of acquired deferred services revenue

721

721

929

Settlement adjustment – subscription revenue (2)

–

–

(5,250

)

Settlement adjustment – services revenue (2)

–

–

14,546

Non-GAAP revenue

$

1,256,418

$

1,312,281

$

1,252,390

GAAP gross margin

$

930,253

$

993,340

$

915,322

Fair value adjustment of acquired deferred revenue

787

787

1,270

Settlement adjustment – revenue (2)

–

–

9,296

Fair value adjustment to deferred services cost

(308

)

(308

)

(384

)

Stock-based compensation

11,939

11,939

11,525

Amortization of acquired intangible assets included in cost of revenue

27,306

27,306

26,706

Non-GAAP gross margin

$

969,977

$

1,033,064

$

963,735

GAAP operating income

$

63,042

$

101,620

$

72,613

Fair value adjustment of acquired deferred revenue

787

787

1,270

Settlement adjustment – revenue (2)

–

–

9,296

Fair value adjustment to deferred services cost

(308

)

(308

)

(384

)

Stock-based compensation

86,400

86,400

82,939

Amortization of acquired intangible assets included in cost of revenue

27,306

27,306

26,706

Amortization of acquired intangible assets

23,841

23,841

31,350

Acquisition-related and other transactional charges included in general and administrative costs

3,110

3,110

1,853

Restructuring and other charges, net

51,114

51,114

3,764

Non-GAAP operating income (1)

$

255,292

$

293,870

$

229,407

GAAP net income (loss)

$

(27,460

)

$

2,979

$

51,987

Fair value adjustment of acquired deferred revenue

787

787

1,270

Settlement adjustment – revenue (2)

–

–

9,296

Fair value adjustment to deferred services cost

(308

)

(308

)

(384

)

Stock-based compensation

86,400

86,400

82,939

Amortization of acquired intangible assets included in cost of revenue

27,306

27,306

26,706

Amortization of acquired intangible assets

23,841

23,841

31,350

Acquisition-related and other transactional charges included in general and administrative costs

3,110

3,110

1,853

Restructuring and other charges, net

51,114

51,114

3,764

Income tax adjustments (3)

29,719

11,816

(37,581

)

Non-GAAP net income

$

194,509

$

207,045

$

171,200

GAAP diluted earnings (loss) per share

$

(0.23

)

$

0.03

$

0.44

Fair value adjustment of acquired deferred revenue

0.01

0.01

0.01

Settlement adjustment – revenue (2)

–

–

0.08

Stock-based compensation

0.73

0.73

0.70

Amortization of acquired intangibles

0.43

0.43

0.49

Acquisition-related and other transactional charges

0.03

0.03

0.02

Restructuring and other charges, net

0.43

0.43

0.03

Income tax adjustments

0.25

0.10

(0.32

)

Non-GAAP diluted earnings per share

$

1.64

$

1.74

$

1.45

GAAP diluted weighted average shares outstanding

117,724

118,714

118,158

Dilutive effect of stock-based compensation plans

990

–

–

Non-GAAP diluted weighted average shares outstanding

118,714

118,714

118,158

(1

)

Operating margin impact of non-GAAP adjustments:

Twelve Months Ended

September 30,

September 30,

September 30,

2019

2019

2018

ASC 606

ASC 605

ASC 605

GAAP operating margin

5.0

%

7.7

%

5.8

%

Fair value adjustment of acquired deferred revenue

0.1

%

0.1

%

0.1

%

Settlement adjustment – revenue (2)

0.0

%

0.0

%

0.6

%

Fair value adjustment to deferred services cost

0.0

%

0.0

%

0.0

%

Stock-based compensation

6.9

%

6.6

%

6.7

%

Amortization of acquired intangibles

4.1

%

3.9

%

4.7

%

Acquisition-related and other transactional charges

0.2

%

0.2

%

0.1

%

Restructuring and other charges, net

4.1

%

3.9

%

0.3

%

Non-GAAP operating margin

20.3

%

22.4

%

18.3

%

(2

)

Our Q4’18 and FY’18 GAAP revenue results include the impact of a settlement of a customer dispute concerning a professional services receivable. The settlement, reached in September 2018, included partial payment of the receivable and new software purchases. The net revenue write-down recorded in the fourth quarter of 2018 was $9.3 million, comprised of a $14.5 million services revenue write-down, partially offset by new subscription revenue of $5.2 million. We have excluded these amounts from our Non-GAAP results.

(3

)

We have recorded a full valuation allowance against our U.S. net deferred tax assets. As we are profitable on a non-GAAP basis, the 2019 and 2018 non-GAAP tax provisions are being calculated assuming there is no valuation allowance. Income tax adjustments reflect the tax effects of non-GAAP adjustments, which are calculated by applying the applicable tax rate by jurisdiction to the non-GAAP adjustments listed above. The fourth quarter of 2018 excludes the GAAP benefit of a $3 million valuation allowance release in a foreign jurisdiction as the jurisdiction was profitable on a non-GAAP basis and a non-cash benefit of approximately $12 million related to the enactment of the Tax Cuts and Jobs Act.